Overview
This section outlines the Administrative Contracting Officer’s (ACO) responsibilities for supervising, approving, and managing progress payments throughout the life of a contract. It focuses on protecting the Government’s interests by tying the degree of oversight to the contractor’s financial health, performance reliability, and accounting system adequacy.
Key Rules
- Supervision Levels: The extent of progress payment oversight (prepayment vs. periodic review) varies inversely with the contractor’s financial strength, experience, and the adequacy of their accounting controls.
- Approval Criteria: For contractors with a proven track record of reliability and sound finances (established within the last 12 months), the ACO should approve payment requests as a matter of course based on the contractor’s certification.
- Suspension and Reduction: The Government may suspend or reduce payments for material noncompliance, unsatisfactory financial condition, excessive inventory, or failure to pay performance costs. This must be done following notification and evaluation, rather than precipitately or arbitrarily.
- Loss Contracts: If a contract is expected to result in a loss, the ACO must apply a "loss ratio factor" to all progress payments to ensure the Government does not pay more than the revised contract value.
- Liquidation Rates: While the standard liquidation rate matches the progress payment rate, an "alternate method" may be used to allow contractors to retain earned profit, provided specific performance and duration criteria are met.
- Title and Risk of Loss: The Government takes title to all materials and work-in-process associated with progress payments; however, the contractor retains the risk of loss for this property unless the Government expressly assumes it.
Practical Implications
- Administrative Burden: Contractors with weak accounting systems or unstable finances will face significantly higher administrative hurdles, including frequent audits and mandatory prepayment reviews.
- Financial Monitoring: ACOs act as financial risk managers; they must proactively adjust payment rates or suspend funds if a project becomes a "loss contract" or if the contractor's overall financial condition deteriorates, even if the specific contract is performing well.